Panic Strikes Wall Street

Panic Attack

Matters of fact fall on deaf ears

While the bitter mobs ramp up their fears

Go creeping 'round those corridors of power

As the dead heads gladly suffer sins

While the euthanizing then begins

The clock is ticking down to doomsday hours

Panic Attack, panic attack

Panic attack, panic attack 

- Tipton, Halford, Faulkner (Judas Priest) 2024

Run to the Hills? 

From contemporary Judas Priest to classic Iron Maiden? Not exactly. U.S. stock markets on Friday? Bingo. What was that? Was it panic? It was close. You could smell the fear. I've only smelt that kind of market fear a few times in my career. Brings me back to 1987, or maybe 2008, in my head. Felt it again in 2020, but that was different. Perhaps panic, pure panic ... is still to come. 

When I enlisted in the military, conditioned as I was to what I had seen in the movies, there were three things that really surprised me. One, how truly loud and earth-shattering, hand grenades could be. Two, similarly, that mortars did not make a "thump" sound when fired, but could make your ears bleed, and three ... that unlike John Wayne in "The Longest Day"... everyone buckled the strap on their helmets. In fact, one was likely to get smacked around by one's sergeant if one tried to walk around with an unbuckled helmet. 

Well, kids... I think you better cover those grapes with some kind of protective gear and buckle those chinstraps. There may be a buying opportunity here somewhere, as there had been two weeks or so ago. That said, it's very possible that that was an invitation to trade and not to invest. We'll find out shortly enough just how terrified portfolio managers are of this new remodeling of the U.S. economy. There very well may be a rainbow on the other side of this oncoming tornado. There may even be another invitation to trade offered as soon as this week. 

You well know what I try to teach at times like this. Narrow the book. Make sure cash levels are elevated. Understand, Identify, Adapt, Overcome and Carry On. In that order. Everything done is done for a reason that one could explain to a novice. No gambling. OK, Saddle up. Full battle rattle. Let's go....

Lay of the Land

I am sure that most readers have checked global markets by now. Global equities are trading in the hole across both Asia and Europe. Japan's Nikkei 225 gave up 4.05% during Monday's trading session and now stands a rough 12% lower than it did at its recent peak in December. South Korea's Kospi Index gave up 3% on Monday. At the time of this writing, while still open, Europe's Stoxx 600 is trading more than one percent lower as US equity index futures continue to dance with the "ugly stick." 

U.S. stocks sold off hard on Friday, putting three consecutive losing seasons to the tape and turning the week in its entirety into a negative one. The S&P 500 gave up 1.53% for the week, posting a fifth red weekly candlestick in the past six weeks. The Nasdaq Composite surrendered an ugly 2.59% for the week, also slumping for a fifth week in six. 

So, What Happened...

- CoreWeave (CRWV) finally went public on Friday in a wildly disappointing IPO. Fewer shares than expected were priced at a lower level than expected. Without Nvidia's NVDA help, would there have even been a deal?

- The February core personal consumption index printed at month-over-month growth of 0.4% on Friday vs. expectations for growth of 0.3%. Additionally, this item on a year-over-year basis, printed at growth of 2.8% versus expectations for growth of 2.7%.

- The University of Michigan released the final revisions to the Consumer Sentiment survey for March on Friday. The headline print was revised down to 57.0 from 57.9, down from 64.7 in February. That makes March 2025 the weakest month for the survey since November 2022. The expectation in this survey for one year inflation was revised higher to an even 5% from 4.9%. This is the hottest reading for that series since October of 2022.

Of course, this all comes ahead of this week's "Liberation Day" which is really what has economists, investors, traders, and consumers on edge.

Liberation Day 

This Wednesday: April 2. Mark it on your calendars. Tariffs of at least 20% are likely to be enacted on exports from more than 25 countries. Tariffs are expected to be placed on more than $1.5 trillion worth of imports. These will be new tariffs placed in addition to existing tariffs. While these tariffs are expected to be "reciprocal" in nature and while that does seem fair on the surface, economic upheaval seems apparent, and orderly market behavior, at least in the short term, while preferable, does not seem to be a necessary part of the president's plan. 

Keep in mind that there is a plan, and that reduced taxes as well as a deregulated corporate environment are part of it. That does mean that there are some painkillers on the way as long as the dominoes fall the right way. Remember the old infantry adage (that easily predates boxer Mike Tyson's quote) ... "Everyone has a plan until first contact with the enemy." That means that things often go awry. The goal here is obviously the rebuilding of the American middle class. That would be a truly wonderful destination. Getting there might not be so wonderful.

The Numbers 

What the major to mid-major U.S. equity indexes did as markets ended up being slapped around late last week:

• The S&P 500 gave up 1.97% on Friday and 1.53% for the week.

• The Nasdaq Composite gave back 2.7% on Friday and 2.59% on the week.

• The Nasdaq 100 surrendered 2.61% on Friday and 2.39% for the week.

• The Russell 2000 gave up 2.05% on Friday and 1.64% for the week.

• The S&P Small Cap 600 gave back 2.14% on Friday and 1.23% for the week.

• The S&P Mid Cap 400 gave up 1.83% on Friday and 1.04% for the week.

• The Dow Transports lost 1.96% on Friday, but just 0.11% for the week.

• The Philly Semiconductors surrendered 2.95% on Friday and an awful 5.99% for the week.

• The KBW Bank Index lost 2.43% on Friday and 1.92% for the week.

On Friday, ten of the 11 S&P sector SPDR exchange-traded funds closed in the red, led lower by the Discretionaries XLY at -3.11%. Three other funds gave up more than 2% for the day, while only the Utilities XLU closed in the red. Defensives took the top three slots on the daily performance tables and four of the top five.

For the week, seven of these eleven funds closed in the red as Technology XLK easily led to the downside. Staples XLP, another defensive sector, easily led the week's winners.

The GDP Game 

The Atlanta Fed revised the GDPNow model for the first quarter to -2.8% (q/q, SAAR) last week, down from -1.8% the week prior. Among other regional central bank district branches running close to real-time GDP models for the current quarter, the New York Fed's estimate for Q1 growth now stands at 2.86%, up from 2.72%, while the Cleveland Fed left its model at growth of 1.86%. The St. Louis Fed's model was revised over the weekend down to growth of 2.13% from 2.25%. 

While there is obviously no consensus as of yet on the current pace of economic activity, how deeply negative the estimate out of Atlanta is truly concerning. A lot of that has to do with the export and import of physical gold. Adjusted for gold, Atlanta's model becomes -0.5%, still contractionary territory, but not -2.8%. The real question for readers might be.. why have imports of gold spiked as they have this quarter, enough to significantly impact a serious GDP model? 

In an attempt to answer that question, I refer readers to the above Judas Priest song. It's really a pretty good tune. I just played it myself on YouTube while working. 

Where is Hedgeye's Nowcast Model? You know that I don't want to give away their store and if you're a reader of mine, you know that I trust their work. I really, really trust their work, enough to pay for it because across a number of economic fronts, I felt that their own models were superior to mine. They are now slightly negative on Q1 on a q/q SAAR basis, very close to being in line with Atlanta ex-gold. Hmm...

Bear Flag

I saw this in a number of places over the weekend. I say that so as not to claim the work as my own. I first saw it in a piece by David Keller of Sierra Alpha Research and have since seen it elsewhere as well. I erased most of my markings on this chart so as to declutter what I am trying to show you and emphasize David's work.

Readers will still see the Double Top pattern of bearish reversal that set up the March sell-off for the S&P 500. Then there is this rally that we confirmed through our "Day One" / "Confirmation Day" process. That rally, however, came to an abrupt halt at the all-important 200-day simple moving average for the index. That rally now, according to Keller, looks like a Bear Flag.

A Bear or Bull Flag is a counter trend move, often on reduced trading volume (which we have here) that should not reclaim more than half of the flagpole or original move into trend (which we have here). A flag is often a pattern of trend continuance. This, we are seeing in real time if last week's three-day losing streak is extended.

What's Ahead?

- Liberation Day is Wednesday. Opportunity or despair? You decide.

- March Jobs Day is Friday.

- Three Fed Governors including Chair Jerome Powell are scheduled to speak publicly on Friday after the employment data is released.

- The earnings calendar will be extremely light this week. Well-known names that are reporting do include PVH Corp PVH this afternoon, followed by RH RH, which is the old Restoration Hardware on Wednesday. Finally, Acuity Brands AYI, ConAgra CAG and Lamb Weston LW all report on Thursday.

Economics (All Times Eastern)

09:45 - Chicago PMI (Mar): Expecting 45.4, Last 45.5.

10:30 - Dallas Fed Manufacturing Index (Mar): Expecting -12, Last -8.3.

The Fed (All Times Eastern)

No public appearances scheduled.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: LOAR (.11)

After the Close: PVH (3.21)

At the time of publication, Guilfoyle was long NVDA equity.